Are early-stage funding rounds out of control?
Software businesses are setting new heights for fundraising nearly every day. Transmit Security broke records last summer with their $543 million Series A, and in Q3 2021, $26.4 billion was invested in North American early stage startups, compared with $12.1 billion a year earlier. There have been warnings that these landmark fundraises are driven by too much capital available and a highly competitive venture market.
However, despite the twofold growth in dollars invested, the number of companies receiving funding has grown by less than 30% compared with Q3 2020. Simply put, 2021 has seen startups raise the bar for what a good company looks like and investors have been willing to pay a high price for a piece of the pie.
Recent benchmark data shows that qualifying for the top quartiles in key SaaS Metrics was harder in 2021 than ever before, particularly when you consider the growth and net dollar retention metrics.
From 2018-2020, growing at 140% would put business in the top quartile as a Series A company.
Beyond growth, formerly impressive metrics like 110% net dollar retention no longer make the cut.
Taking a closer look at each of these early rounds highlights that investors might not be going crazy with their recent investments as startups redefine what “good” looks like.